Television reshapes its economy as technology advances

Change isn't coming to TV—it's here, and those in the industry are cautiously …

Television is in a state of flux, and the players in the content industry are moving warily about one another, vying for their future share of the monetary pie as the traditional model of network/affiliate broadcasting begins to crumble. OnDemand, legal downloads, digital video recorders (DVRs), and portable video players are working in concert to change the way we access TV, to the point where even referring to it as "television" may someday be a misnomer.

For the short term, the position of the networks as content providers looks to be somewhat secure, even as the economic model of selling commercials during shows may be in for a body slam. Networks are slowly getting used to the idea of selling programs in various time-shifted formats and offering ad-supported downloads, but this new paradigm bypasses the network affiliate stations completely, and those stations have no desire to become unprofitable or obsolete. David Rehr, chief executive of the National Association of Broadcasters, spoke on the topic this week.

"Networks and local affiliates must share in new revenue streams, as they are partners in building brands and creating value," Rehr said. "This will also help ensure the continued viability of the invaluable network/affiliate relationship."

Traditionally, affiliate stations make their money from the sale of commercials aired during a broadcast, as do the networks. Available commercial time is divided between both entities, so each is somewhat responsible for their own revenue. When Rehr opines that the networks and affiliates must share in the revenue streams, what he's really saying is that the affiliate stations deserve a cut of the network's profits from alternate distribution. For now, this concept probably makes sense, as affiliate stations are still responsible for the bulk of the distribution and promotion of the network shows people enjoy. Without broadcast distribution, a popular show like "Lost" would be in danger of becoming just that.

However, the long-term outlook appears less rosy for affiliate stations. If time-shifted distribution via the Internet becomes the de facto method of watching television, local affiliates may find themselves with less to offer, and therefore less justification for a cut of the take. Fox has contracted with its affiliates to give them a share of the revenue from downloads, but other networks have been moving more slowly.

NBC is exploring the concept of distributing locally produced content online, so that affiliate stations can develop new revenue streams, but the success of that model depends on local stations producing content that a national audience wants to watch. In many cases, affiliates don't produce any original content beyond local news, and haven't for years. Perhaps it's time for them to start again, while they remain viable.

On a related note, several craft unions have come to an agreement with Touchstone Television for conditions under which short episodes of the show "Lost" can be produced for distribution over mobile phones. Since the economics of what the industry calls "mobisodes" are completely different than those of traditional TV, a new contract had to be created to cover pay scales as well as residuals and health benefits for workers in the new medium. No doubt, this new contract will turn into a benchmark of sorts, as other networks begin the dance with alternative formats.

As the television industry tries to balance enough of its classic revenue sources to stay vital during this technological transition period, we'll probably see some traditional brands falter while some new names rise Google-like to the top. The changes taking place in recent years within the camera industry probably provide a good analog, as we've watched Polaroid stumble, and Konica merge with Minolta, then exit the industry altogether. Meanwhile, Sony and Casio cameras have become commonplace, and many people now take pictures with their phones.

In the coming world in which consumers access TV programs whenever and however they wish, no one wants to become the next decade's Minolta. The players who are most likely to come out on top are those that can guess where things are headed, then plan correctly.